1. The tremendous tempo of development of the productive forces in Stalinist Russia

The tempo of development of the productive forces in Stalinist Russia is greater than it has been in any other country at any time. According to Soviet statistics the industrial production in the years 1928-40, measured in 1926/7 prices, multiplied 7.5 times. This is undoubtedly highly exaggerated. Thus, for instance, while the value of machinery and steel products multiplied 13 times, the volume of the coal, iron and steel output multiplied only three to five times. As volumes are much more difficult to falsify than price calculations, we may assume that production really multiplied about five times between 1928 and 1940. Even this figure shows that extraordinarily rapid progress was made. Let us compare it with the peak periods of the rise of industrial output in some important countries: in the United States between 1880 and 1890, when industrial production rose relatively quickest, it multiplied 2.2 times; in England between 1860 and 1870 it multiplied 1.29 times; in Germany between 1914 and 1923 it multiplied 1.81 times; in France between 1920 and 1930 it multiplied 2.2 times; in Tsarist Russia between 1890 and 1900 it multiplied 2.5 times and between 1910 and 1913 1.68 times.

2. How can we explain this extraordinary tempo of development?

The first reason is that a clean sweep was made of feudalism by the October Revolution.

The second reason is the tremendous natural wealth of Russia.

Thirdly, the fact that world technique has advanced much beyond what it was at the time of the industrialisation of England, France, Germany and the US made it possible for Russia to adopt the last word in technique, and in this way to stride very rapidly forward. This factor is connected with the fourth.

The fact that Russian industry was built, so to say, from scratch, meant that the introduction of modern methods of production did not meet the obstacle produced by the existence of old means of production, which was and is a great hindrance in many countries (particularly Britain).

The fifth reason is that there are no monopolist organisations (cartels, syndicates or trusts) which are interested in a ‘policy of scarcity’ as a means of raising the rate of profit.

The sixth reason is the control of the state over the different elements of the process of reproduction - consumption and accumulation, the movement of workers in the labour market, etc., etc. This control of the state over the economy as a whole makes it possible to depress the standard of living of the masses to a very low level, to produce a very small quantity of means of consumption, and to divert capital and labour power to the production of new means of production. This is indeed the most important factor explaining Russia’s quick tempo of industrialisation. [1]

As we shall see below, the last reason, together with the fact that Stalinist Russia began to develop its industry at a time when its productive forces were very much lower than those of the capitalist world as a whole, explain the non-existence hitherto of crises or stagnation. This constitutes the seventh reason for the great expansion of the productive forces in Stalinist Russia. The question of Russian economy and the trade cycles, however, needs special elaboration.

Before doing this, let us first of all summarise the Marxian interpretation of the crisis of overproduction, and then we can tackle the question of whether state capitalism can avoid such crises and, if so, how.

3. The causes of capitalist crisis

In contradistinction to the pre-capitalist forms of production, accumulation, that is reproduction on an enlarged scale, is an inner necessity of the capitalist form of production. But reproduction on an enlarged scale meets with two obstacles which, although complementary, are yet contradictory. They both arise out of itself, and oppose themselves to it. The one is the decline of the rate of profit which means the decline of the sources of accumulation for reproduction on an enlarged scale. The other is the increase of production above and beyond the market. If not for the first contradiction, the ‘underconsumptionist’ concept of how to overcome the crisis - by raising the wages of the workers - would have been a simple and excellent method. If not for the second contradiction, fascism, by a continuous cutting of wages, could have saved capitalism from the crisis for at least quite a long period.

Let us begin with the first side of the dilemma of capitalism: the low purchasing power of the masses as a cause of overproduction.

Marx writes:

The entire mass of commodities, the total product, which contains a portion which is to reproduce the constant and variable capital as well as a portion, representing surplus-value, must be sold. If this is not done, or only partly accomplished, or only at prices which are at below the prices of production, the labourer has been none the less exploited, but his exploitation does not realise as much for the capitalist. It may yield no surplus-value at all for him, or only realise a portion of the produced surplus-value, or it may even mean a partial or complete loss of his capital. The conditions of direct exploitation and those of the realisation of surplus-value are not identical. They are separated logically as well as by time and space. The first are only limited by the productive power of society, the last by the proportional relations of the various lines of production and by the consuming power of society. This last-named power is not determined either by the absolute productive power nor by the absolute consuming power, but by the consuming power based on antagonistic conditions of distribution, which reduces the consumption of the great mass of the population to a variable minimum within more or less narrow limits. The consuming power is furthermore restricted by the tendency to accumulate, the greed for an expansion of capital and a production of surplus-value on an enlarged scale. [2]

And he adds:

The stupendous productive power developing under the capitalist mode of production relatively to population, and the increase, though not in the same proportion, of capital values (not their material substance), which grew much more rapidly than the population, contradict the basis, which, compared to the expanding wealth, is ever narrowing and for which this immense productive power works, and the conditions, under which capital augments its value. This is the cause of crises. [3]

Marx formulated the same idea in another place thus:

The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit. [4]

In the last analysis, the cause of the capitalist crisis is rooted in the fact that a greater and greater part of the income of society falls into the hands of the capitalist class, and a greater and greater part of this is directed not towards buying means of consumption, but means of production – is directed towards the accumulation of capital. But, seeing that all means of production are potentially means of consumption – i.e. that after a certain lapse of time the value of the means of production becomes incorporated in means of consumptions – therefore the relative increase in the part of the national income directed to accumulation, as against that part directed towards consumption, must necessarily bring with it overproduction.

And this is a cumulative process. The increase in accumulation is accompanied by rationalisation, and therefore brings in its wake an increase in the rate of exploitation – the greater the rate of exploitation, the greater the fund from which accumulation is drawn, as against the wages of the workers and the revenue of the capitalist directed to consumption: the greater the accumulation, the greater the drive towards additional accumulation.

If “the poverty and restricted consumption of the masses” were the only cause of the capitalist crisis, the crisis would exist as a permanent phenomenon, as the wages of the workers always lag behind the rise in the productivity of labour. We should then not have known the one-time catastrophic equation of different elements.

But seeing why the crisis is not permanent, let us first of all deal with the second side of the dilemma of capitalism: the decline of the rate of profit. The process of capital accumulation is accompanied by a rise in the organic composition of capital, in other words the substitution of living labour by dead labour. The former produces surplus value, the latter does not. This causes the constant tendency of the decline of the rate of profit. The decline of the rate of profit on its side sharpens the competition between the capitalists, each of whom tries to increase his profitat the expense of his rivals. This competition pushes ahead the rationalisation of production, which causes the organic composition of capital to rise even more, and so the vicious circle begins again.

This tendency alone does not explain the cyclic movement of revival, boom, crisis, and depression. Marx explains that the decline of the rate of profitwhich results from the raising of the organic composition of capital is a very slow process [5], which comes upo against many counteracting forces.It constitutes the background of the economic cycle. The immediate causes of the cycle must be sought in changes in the wage ratewhich result from the changes in the demand for labour power accompanying the process of accumulation. Marx writes clearly about the decline of the rate of profit:

It promotes over-production, speculation, crises, surplus-capital along with surplus-population. [6]

The barrier of the capitalist mode of production becomes apparent: (1) in the fact that the development of the productive power of labour creates in the falling rate of profit a law which turns into an antagonism of this mode of production at a certain point and requires for its defeat periodical crises. [7]

As regards the rise of the wage level in the wake of the increased employment during a boom, he writes that if it were said:

... that the working class receive too small a portion of their own product, and the evil would be remedied by giving them a larger share of it, or raising their wages, we should reply that crises are precisely always preceded by a period in which wages rise generally and the working class actually get a larger share of the annual product intended for consumption. [8]

On the connection between (1) the trade cycle, (2) the rate of profit, (3) the level of wages, and (4) the extent of unemployment, when the last factor takes on decisive importance in the ending of the boom and the heralding of the crisis, Marx writes:

The whole form of the movement of modern industry depends, therefore, upon the constant transformation of a part of the labouring population into unemployed or half-employed hands ... As the heavenly bodies, once thrown into a certain definite motion, always repeat this, so is it with social production as soon as it is once thrown into this movement of alternate expansion and contraction. Effects, in their turn, become causes, and the varying accidents of the whole process, which always reproduces its own conditions, take on the form of periodicity. [9]

The causal connection between the rate of profit, capital accumulation, the extent of employment and the level of wages may be described thus: the rate of profit determines the rate of accumulation, the rate of accumulation determines the extent of employment, the extent of employment determines the level of wages, the level of wages determines the rate of profit, and so on in a vicious circle. A high rate of profit means a quick accumulation, which means an increase in employment and a rise in wages. The cumulative process proceeds to a point where the rise in wage rates so adversely affects the rate of profit that accumulation either declines catastrophically or ceases altogether.

The material basis which unites the cycle of the rate of profit and the cycle of accumulation and the cycle of employment, is the life-cycle of fixed capital (i.e. machinery, buildings, etc.):

To the same extent that the volume of the value and the duration of the fixed capital develop with the evolution of the capitalist mode of production, does the life of industry and of industrial capital develop in each particular investment into one of many years, say of ten years on an average. If the development of fixed capital extends the length of this life on the one side, it is on the other side shortened by the continuous revolution of the instruments of production, which likewise increases incessantly with the development of capitalist production. This implies a change in the instruments of production and the necessity of continuous replacement on account of virtual wear and tear, long before they are worn out physically. One may assume that this life-cycle, in the essential branches of great industry, now average ten years. However, it is not a question of any one definite number here. So much at least it is evident that this cycle comprising a number of years, though which capital is compelled to pass by its fixed part, furnishes a material basis for the periodical commercial crises in which business goes through successive periods of lassitude, average activity, overspeeding and crisis. It is true that the periods in which capital is invested are different in time and place. But a crisis is always the starting point of a large amount of new investments. Therefore it also constitutes, from the point of view of society, more or less of a new material basis for the next cycle of turn-over. [10]

This explains why, despite the antagonistic mode of distribution and the tendency of the rate of profit to decline, there is not a permanent crisis of overproduction, but a cyclical movement of the economy. During the period of renewal and addition to fixed capital, there is no direct relationship between the immediate introduction of new means of production and the addition to the supply of finished goods. After a certain lapse of time, running into a few years, the value of the new means of production begins to be incorporated in new products (means of production and means of consumption alike): this takes place without any, or with only a relatively small amount of, capital investment taking place at the time. Thus capitalism experiences a periood of a few years in which investments in the construction of new industries, or the expansion of existing ones, are very large compared with the rise in the output of finished goods. These are the years of boom. Following this there is a period in which the output of finished goods expands considerably almost simultaneously with a decline in the rate of accumulation. This is the crest of the boom and the harbinger of the coming crisis. Then comes the crisis: production declines catastrophically while investments disappear or even give place to disinvestment.

Bound up with the declining rate of profit in its two aspects (the general tendency towards the decline of the rate of profit and its cyclical movement) and with it the “restricted consumption of the masses” – both ass a cause and a result – is another important factor: the disproportionality between different industries.

The disproportionality between different industries may be the direct result of the anarchic character of capitalist production. In this case the capitalists of one industry overestimate the demand for its products and therefore overexpand the productive capacity of the industry. As the number of capitalists is large, it is only after production has taken place that the capitalist becomes aware through the market that supply has exceeded the demand. Overproduction in one branch of industry thus causes a decline in prices, decline of profits, a restriction in production, and a decline in the demand for labour power, raw materials and machinery produced by other factories, etc. This restriction is not necessarily compensated for by the expansion of production in other industries. On the contrary, the contraction of production in one industry can bring in its wake a contraction of production in other industries directly or indirectly dependent on it. If the industry which suffers initially from overproduction is an important one, the cumulative result of the disproportionality between this industry and the rest of the economy can be a general crisis. Marx said, “That a crisis (and hence also overproduction) be general it is enough that it seize hold of the leading articles of commerce.” [11]

In this case the disproportionality between different industries is the cause of the decline of the rate of profit and the decline of the consumption of the masses, and these three factors together bring about the crisis.

It may also happen, however, that the disproportionality between different industries is the result of the decline of the rate of profit or the underconsumption of the masses even though it in turn influences them. Where on the basis of a certain rate of profit there is a certain tempo or rate of accumulation, it is here the rate of profit that determines the demand for means of production and makes for a certain relation between the demand for the products of the department of means of production and the demand for the products of the department of the means of consumption. A decline in the rate of profit, by causing a decline in the rate of accumulation, immediately changes the pattern of demand; and so the proportional relations that previously existed between the production of the means of production and the production of the means of consumption is turned into a disproportional relation. A similar relation exists between the underconsumption of the masses and the proportionality or disproportionality between the different industries. As Lenin said:

The ‘small consuming power of society’, and ‘the proportionality of the various branches of production’ – these are absolutely not individual, independent, unconnected conditions. On the contrary, a certain state of consumption is one of the elements of proportionality. [12]

One of the expressions of disproportional developmentof different industries is the changes in the output of raw materials in comparison with the demand for them. This expresses itself in changes in the price of raw materials compared with the price of finished goods. In most cases at the beginning of the revival the supply of raw material exceeds the demand, and their price are therefore low. With the upswing of economic activity, the price of raw materials rises, thus increasing the cost of production, which adversely affects the rate of profit. [13] the fact that the price of raw materials rises more than the price of finished goods during a boom, and falls much more steeply during a crisis, is due to the supply of raw materials being far less elastic than the supply of finished goods.

An additional factor expressing the disproportionality between different industries, which is more the result rather than a cause of the economic cycle, but which has nevertheless an important reflex influence, is the rate of interest. The active capitalist – the entrepreneur – does not receive the whole surplus value, but only what remains after the deduction of rent, taxes and interest. In general, at the beginning of the revival, there is an excess of credit over the demand for it, so that the rate of interest is low, in turn encouraging the revival. During a boom the rate of interest continues low, until a short time before the end of the boom, when it rises sharply, reaching its maximum with the crisis. After that it falls very sharply. [14] Thus, while the curve of the general rate of profit and the curve of the economic cycle as a whole roughly correspond, the rate of interest curve shows much more convulsicve zig-zags, cutting across the curve of the economic cycle – it is very high at the height of the boom and at the crisis. It serves on the one hand to spur the revival on to a wild gallop, and on the other to deepen the crisis.

One aspect of the relation between the rate of interest and the profit of enterprise is the plethora and dearth of credit. Credit has made it possible for capitalism to advance at an unprecedented tempo, but at the same time it increases the instability of the system. It blinds the industrialists to the real situation of the market, so that they continue to expand production beyond the point at which they would have stopped if all payments were done in cash. This postpones the actual outbreak of the crisis, only it deepens it when it comes.

One further contributory factor in bringing about the crisis is the chain of middlemen that usually exists between the industrial capitalist and the consumers. Owing to their activity production can within certain limits increase without the sale of products to consumers correspondingly increasing. The unsold products remain as stocks in the hands of merchants. [15]

State capitalism and the crisis: the posing of the problem

Even a superficial glance shows that some of the causes which bring about a crisis of overproduction in traditional capitalism would not exist under conditions of state capitalism. For instance, the last factor mentioned above, the chain of middlemen between producers and consumers, which blinds the producers to the true situation of the market, not only would not exist under state capitalism, but even in private enterprise is theoretically capable of elimination, by the industrialist selling his product directly to the consumer through a trading network of his own. Credit too, a a factor encouraging production beyond the point it would go if all payments were in cash, as well as the influence of the rate of interest as a factor accentuating the boom and deepening the crisis, would not act under state capitalism as a contributory cause of the oscillatory movemebt of production: here, as the state is the owner of all capital, credit functions in fundamentally the same way as if each capitalist used his own capital; in other words, as if credit does not exist at all. The factor of disproportionality as the initial cause of the crisis(not as an accompanying phenomenon of the decline of the rate of profit or underconsumption of the masses) will also not exist under state capitalism. Although mistakes in investment are not excluded, and it is possible tat the supply of a certain product may exceed the demand, the fact that the state plans production and demand excludes wide disproportionalities. Moreover, as the state is owner of all industries, in place of the cumulative process of decline in prices and a decline of the rate of profit which spreads from one industry to another, the whole economy will directly bear the difficulties which are the result of a partial over-production. Then, when the next production turnover takes place, the production of this product will be decreased and equilibrium restored. That these factors do not exist is conditioned on a consideration of the internal relations of the state capitalist economy alone. If the state capitalist economy produces for the world market, receives credit from other countries, etc., these factors will have a certain influence on it. (this will be dealt with more extensively below.)

But what about the fundamental dilemma which traditional capitalism is always faced with: how can a high rate of profit be achieved while at the same time the surplus value is realised; how can a quick accumulation of capital be undertaken without undermining the market which is necessary for it? We know that in a certain phase of the cycle – the boom – traditional capitalism temporarily solves the problem: a high rate of profit brings about a quick accumulation, that is, a big rise in the production of means of production relatively to the means of consumption, so that the market for the realisation of a big part of the surplus value is the department of means of production. (This alone is sufficient to explain why the underconsumption of the masses does not cause a permanent crisis and prevent the expansion of production under capitalism altogether.) If capitalism could transform the phase of the boom from a temporary to a permanent one, overproduction would never exist. Can state capitalism do this? Can it ensure a high rate of profit, a high rate of accumulation, a high level of production, while yet preserving the antagonistic way of distribution, “the poverty and restricted consumption of the masses”?

Before answering these fundamental questions, we shall diverge a little from our subject, but only to take a short cut to the answer.

Two important economists tried to prove that, however restricted the consumption of the masses, a crisis of overproduction is not inevitable. The one is Mikhail Tugan-Baranowsky, the most original theoretician of revisionism, the other Dr F.A. von Hayek, the outstanding bourgeois economist. Their analyses may serve a useful purpose as an introduction to the solution of the problem posed.

5. Hayek

Dr Hayek, in his book Prices and Production (London 1931), describes the structure of production as a triangle made up of different layers of production. The base is the means of consumption end, and the apex is the producers’ goods end. During recovery and boom, as he correctly states, the production of means of production increases as against the production of means of consumption; during a crisis the production of means of production drops sharply, the drop being larger than that of the production of means of consumption. Recovery and boom produce the sides of the triangle, lengthening the structure, while the crisis shortens it. Again he correctly concludes from this that in order to make the boom a permanent phenomenon it is necessary to keep on raising the apex. Concretely this means that there should be a continuously high rate of profit and high rate of accumulation, so that the production of means of production is always big compared with the production of means of consumption. How can this be achieved? With the technical change, workers and capital must be transferred from the production of means of consumption to the production of means of production: more people will be employed in the production of machinery in order to produce machinery in order to produce machinery and so on, so that the total quantity of means of consumption produced will increase very slowly notwithstanding the tremendous rise in productive capacity. John Strachey, who deals fully with and competently criticises Hayek s ideas in his book The Nature of Capitalist Crisis, sums up the Hayekian ‘solution’ in these words:

The structure of production must get longer and longer. The sides of the Hayekian triangle must be produced and produced. This, then, is the Hayek-Robbins solution of the dilemma. It is possible, they imply, for all the conditions which are necessarily to the existence of capitalism to be fulfilled simultaneously. It is possible for wages to be kept down to ‘economic levels’, and yet for there to be no glut of consumers’ commodities. For if the demand for consumers’ commodities is thus minimised, no excess of consumers’ commodities will be produced. The entire increase of society’s productive power will be devoted to increasing the production of production’s goods. And if this is done, then there will be no need to increase the ultimate market, The entire increase in the supply of commodities will be an increase in producers’ commodities, which can be absorbed within the structure of production. For that structure will be getting longer and longer. Hence there will be no need for any increased supply of actual consumers’ commodities ever to emerge from the productive process. Industry can take in its own washing on an ever more gigantic scale and forever. The overwhelming majority of mankind can continue to live on a subsistence level in perpetuity and our ever growing powers of production can be permanently absorbed by the task of producing new means of production. Thus there need be no crisis. Capitalism need never feel the lack of a larger market for consumers’ goods, for it will never increase the production of consumers’ goods. The market for which capitalism will produce will be within itself. It will be within its own ever lengthening structure of production.[16]

6. Tugan-Baranowsky

Similar conclusions were reached by Tugan-Baranowsky about 50 years ago. However low the rate of profit, he says, and however low the purchasing power of the masses, no crisis need break out if a certain relation be kept between the two departments of industry so that means of consumption decline more and more relatively to means of production. Taking his conclusion to its end he writes:

If all workers except one disappear and are replaced by machines, then this one single worker will place the whole enormous mass of machinery in motion and with its assistance produce new machines – and the consumption goods of the capitalists. The working class will disappear, which will not in the least disturb the self-expansion process (Verwertungsprozess) of capital. The capitalists will receive no smaller mass of consumption goods, the entire product of one year will be realised and utilised by the production and consumption of the capitalists in the following year. Even if the capitalists desire to limit their own consumption, no difficulty is presented; in this case the production of capitalists’ consumption goods partially ceases, and an even larger part of the social product consists of means of production, which serve the purpose of further expanding production. For example, iron and coal are produced which serve always to expand the production of iron and coal. The expanded production of iron and coal of each succeeding year uses up the increased mass of products turned out in the preceding year, until the supply of necessary minerals is exhausted. [17]

Clearly, as Tugan-Baranovsky himself remarks, the main point of his analysis is not:

the wholly arbitrary and unreal assumption that the replacement of manual labour by machinery leads to an absolute diminution in the number of workers ... but rather the thesis that, given a proportional distribution of social production, no decline in social consumption is capable of producing a superfluous product.” [18]

7. Why the Hayek-Tugan ‘solution’ is impossible under individual capitalism

Tugan-Baranovsky’s and Hayek’s ‘solution’ is impossible of realisation under individual capitalism because of the mutual dependence of the two departments of production, and the blind method of exchange between them.

Capitalist production is on the one hand a production of use values. On the other it is the production of values. Insofar as it is the production of use values, its aim is independent of the social form of production, the aim being the satisfaction of human needs. Insofar as it is a production of values, its aim is accumulation – “to conquer the world of social wealth, to increase the mass of human beings exploited by him [the capitalist]”. [19] Though the capitalist consider use value but the bearer of value, though he consider consumption as a means and not an end, nevertheless the means is vital, as without it the end cannot be achieved. The former cannot exist without the latter:

Consumption produces production by creating the necessity for new production ... No wants, no production. But consumption reproduces the want. [20]

The dependence of accumulation on consumption necessarily means the dependence of the department of means of production on the department of means of consumption. Under individual capitalism this dependence works out blindly. If the ratio orf the supply and demand of means of production increases relatively to that of the means of consumption, the price of means of production will decreases relatively to the price of means of consumption; as a result the rate of profit will decrease in Department I (means of production) and increase in Department II (means of consumption); the outcome will be: (1) a slakening of accumulation in department I and an acceleration of it in Department II. This will continue till proportionality between the two departments is restored.

a necessary element in this process is the free movement of the price of commodities and the free movement of capital from one department to another. An additional element is the rise in the wage rate consequent following on on the exxtensive employment in Department I which causes an an increase in the demand for the products of Department II.

These factors make the application of the Hayek-Tugan “solution” impossible under individual capitalism.

8. The Hayek-Tugan ‘solution’ can be realised for a certain time under state capitalism

The Hayek-Tugan ‘solution’, despite its absurdity from a capitalist standpoint, objectively has ia sound basis. The ‘solution’ is in reality merely the extension of the phase of revival and boom in the economic cycle, a phase in which accumulation increases more than personal consumption, and the production of means of production increases more quickly than the production of means of consumption. For a certain number of years accumulation can far exceed consumption without disturbing the equilibrium. This and the fact that the material basis which unites the cycle of the rate of profit, accumulation and employment is the life and death of fixed capital (machinery, buildings, etc.), suggest that if it were possible to prevent increased production in Department II, and at the same time continuously and steadily to increase production in department I, the length of the boom would be longer than in the decennial cycle. This can be done by state capitalism. The state, by its ownership of the total capital can, while greatly increasing the production fo Department I relatively to Department II, prevent the stream of capital from Department I to Department II.

State capitalism eliminates another cause of the turn from boom to crisis under individual capitalism, and gives a basis for the realisation of the Hayek-Tugan “solution” for a time. Under individual capitalism a high rate of profit causes quick accumulation, extensive employment and high wages. This process proceeds to a point where the wages reach such a level that the rate of profit is adversely affected and drops catastrophically, dragging down with it accumulation, employment and wages. When the workers under capitalism are relatively “free” to bargain over the sale of their labour power, the “relative surplus population is ... the pivot upon which the law of demand and supply of labour works. It confines the field of action of this law within the limits absolutely convenient to the activity of exploitation and to the domination of capital”. [21]

Under a totalitarian state capitalist regime, even if there is relatively no surplus population, and full employment prevails, wages can for a long time remain “within the limits absolutely convenient to the activity of exploitation and to the domination of capital”. [22]

The Tugan-hayek “solution” is therefore possible of realisation in a state capitalism which is lags behind world capitalism, in which means of production are scarce and where therefore the production of machinery in order to produce more machinery and so on reflects the necessities of the national capitalist economy.

But what will happen when the production of machinery to produce machinery to produce machinersy and so on raises the the state capitalist country out of its backwardness? Will the crisis of overproduction break out in highly developed state capitalist economies?

The only Marxist theoretician to pose and deal with this question was Bukharin.

Bukharin on the crisis in state capitalism

In his polemical book on Rosa Luxemburg’s theory of accumulation, der Imperialismus und die Akkumulation des kapitals, Bukharin poses, among other problems, the question of the process of reproduction on an enlarged scale, and discusses whether a crisis of overproduction would take place in it. bhe defines state capitalism in these words: “The capitalist class united in one united trust, an organised economy, but one which is at the same time, from the standpoint of the classes, antagonistic.” [23]

He continues:

Is accumulation possible here? Naturally. The constant capital grows, since the consumption of the capitalists grows. [my emphasis] New branches of production corresponding to new needs are always established. The consumption of the workers, although definite limits are placed upon it, grows. Despite this “underconsumption” of the masses no crisis arises, as the demand of the various branches of production for each other’s products as well as the demand of the consumers, capitalists as well as workers, is fixed in advance. (Instead of ‘anarchy’ of production – what is, from the standpoint of capital, a rational plan.) The consumption of the capitalists is the motive power for production and for the production plan. [my emphasis] Consequently there is in this case not a specially rapid development of production (there is a small number of capitalists). [24]

The words “in this case not a specially rapid development of production” are liable to mislead. Production not only will be “not especially rapid”, but will be very slow down compared with the production capacity of capitalist economy: there will be stagnation.

At first glance it might seem Bukharin’s description of the relation between state capitalism and the crisis of overproduction is to be the absolute opposite of Tugan-Hayek “solution”. Whereas Tugan and hayek speak about capitalism in which there is a very rapid rise of production and accumulation, Bukharin speaks of a system in which production and accumulation are very slow. While Tugan and Hayek speak about accumulation increasing emtoirely independently of consumption, Bukharin speaks about accumulation as a dependent, an accompaniment of consumption. But notwithstanding the antagonism between Tugan-Hayek and Bukharin, they are connected with each other in both pointing to the fundamental contradiction which exists in capitalism between accumulation and consumption. The former p0oints to the possibility of overcoming this contradiction by fully liberating accumulation (and production) from consumption; the latter points to the possibility of overcoming it by slowing down accumulation (and production) in accordance with consumption. The former says that production for accumulation’s sake alone; the latter that quick accumulation is impossible and production will therefore slow down. The former reflects the boom phase of the capitalist cycle in which accumulation far surpasses consumption; the latter the phase of crisis in which accumulation falls far below consumption. In both the worker remains oppressed by capital.

The Tugan-Hayek “solution” is possible for state capitalism in a backward country. Bukharin’s description fits to state capitalism which reaches saturation point of means of production. [25] The latter is a capitalism apparently freed of crisis, but in reality in permanent crisis. A crisis which expresses itself in production’s not rising above the demand is fundamentally the same as stagnation in which production is restricted to the demand. Both express the conflict between the productive forces and the capitalist relations of production and distribution.

When the Tugan-Hayek process ends and the Bukharinist period begins, will unemployment appear?

It will not. Under individual capitalism, the change in the relative size of the reserve army regulates the level of wages: with the decline of the rate of profit, the economy reacts automatically by throwing workers out of industry and increasing the reserve army, which, after a shorter or longer period, brings about a decline in wages and the restoration of the rate of profit, encouraging capitalist production from anew. Under state capitalism this automatism is replaced by the administrative action of the employer-state, which achieves the same objective result of cutting costs of production (necessary in the state capitalist country to encourage production in the interests of its competition on an international scale) in a different way. In a crisis under individual capitalism, let us say 20 percent of the workers are thrown out of employment and the standard of living of the masses (those who receive wages as well as the unemployed who receive relief) falls by 50 percent; state capitalism can achieve exactly the same results in the level of production arid costs of production by keeping frill employment, but cutting wages by 50 percent and cutting the time every worker works by 20 percent. (In addition to what the workers suffer through their wages being cut, this would mean further hardships for them as they would be shifted from one industry to another, would have to migrate from one place to another, etc.)

10. Will the development of production in a state capitalist economy receive a cyclical form?

We have explained that the material basis for the oscillatory movement of economy is the life and death of fixed capital. As in Russia the renewal of the fixed capital does not take the form of a one-time expansion and then stoppage, the anarchy in the renewal of fixed capital (that is the anarchy in accumulation) is not a factor making for an oscillatory movement.

We have seen that the decline of the rate of profit has two aspects: the one, the continuous slow decline of the rate of profit as a result of the rise of the organic composition of capital; the other, the swift decline of the rate of profit as a result of changes in the wage level. The latter alone constitutes a cause of the oscillatory movement. Because of the total suppression of the workers by the state in Russia, this factor does not affect it. The only factor which does affect it is the general decline of the rate of profit consequent upon the continuous rise in the organic composition of capital. This does not drive Russian economy towards an oscillatory movement, but towards eventual stagnation (which in the present Tugan-Hayek stage is overcome, as we have explained, by the production of machinery in order to produce machinery in order to produce machinery and so on).

As credit does not push production in Russia beyond the point where it would have stopped had all payments been made in cash, the money market is not a cause of the cyclical movement of the economy. Strachey describes the movement of the economy under creditless capitalism:

If we can imagine a creditless capitalism in which every transaction was mediated by hard cash, then it is true that the oscillatory form of the crisis, but not the crisis itself, might be abolished. We should get a slow, steady decline of the rate of profit which would act upon the system like a creeping paralysis. [26]

11. How will state capitalism try to overcome the stagnation?

Before approaching this question, let us see how capitalism has hitherto overcome crises. On this The Communist Manifesto says:

And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.

The same idea Marx expressed in Wage Labour and Capital thus:

In the measure that the capitalists are compelled ...to exploit the already existing gigantic means of production on a larger scale and to set in motion all the main- springs of credit to the end, to the same measure do the industrial earthquakes increase, in which the trading world can only maintain itself by sacrificing a part of wealth, products and even of productive forces, to the gods of the underworld- in a word, crises increase. They become more frequent and more violent, if only because in the same measure in which the mass of production, and consequently, the need for extended markets, grows, the world market becomes more and more contracted, fewer and fewer new markets remain available for exploitation, since every preceding crisis has subjected to world trade a market hitherto unconquered or only superficially exploited.

Thus the bourgeoisie overcomes crises not only by the destruction – including the important factor of devaluation – of many of the productive forces, but also by the conquest of new markets. The importance of these conquests for the overcoming of crises was expressed most lucidly by Marx in the chapter on crises in Capital:

This is a law of capitalist production imposed by incessant revolutions in the methods of production themselves, the resulting depreciation of existing capital, the general competitive struggle and the necessity of improving the product arid expanding the scale of production, for the sake of self-preservation and on penalty of failure. The market must, therefore, be continually extended, so that its interrelations and the conditions regulating them assume more and more the form of a natural law independent of the producers arid become ever more uncontrollable. This internal contradiction seeks to balance itself by an expansion of the outlying fields of production. But to the extent that the productive power develops, it finds itself at variance with the narrow basis on which the conditions of consumption rest. [27]

State capitalism, on coming to the crisis of overproduction, will be faced with much deeper contradictions than individual capitalism, and at the same time the means of overcoming them inside the country itself will be much smaller. That the surplus of products will be immense is clear from the fact that state capitalism brings to its peak the antagonistic character of distribution, the accumulation of capital, while it depresses to the extreme the standard of living of the masses. With the abolition of individual peasant economy, with the transformation of the masses of peasants into wage earners, with the transformation of Russia as a whole into one state capitalist economy, the possibilities of overcoming the crisis with the help of internal forces alone cease to exist. To emerge from the crisis demands: cutting wages, cutting the price of raw materials, devaluating fixed capital, and finding new markets.

(1) As regards the cutting of wages: even if we assume that the wages in Russia are not the physical minimum, to cut them will not overcome the crisis, but will only increase the rate of exploitation; in order, however, that the surplus value be realised, it is necessary to enlarge the markets. In the conditions of individual capitalism, where, besides workers and capitalists, there are millions of peasants, urban petty bourgeoisie, etc, the cutting of the wages of the industrial workers does not eliminate the possibility of finding new markets inside the country (at least as long as the capitalist economy is not developed, as long as the internal contradictions are not too deep for the pre-capitalist elements in the country to carry). In the conditions of state capitalism the increase in the rate of exploitation in itself will not pull the economy out of the crisis. Expansion to other countries will be imperative.

(2) As regards the lowering of the prices of raw materials: during a crisis, under conditions of individual capitalism, the price of raw materials usually drops, and through this the rate of profit in industry rises. In this way industry puts the burden of its difficulties on the shoulders of the producers of raw materials- first and foremost the agriculturists in the colonies. Not only, however, does agriculture suffer, but monopolist industry increases its rate of profit at the expense of other industries also. Under conditions of state capitalism all the branches of the economy comprise different elements of one and the same economic enterprise, and the rate of profit cannot rise through one branch raising its prices against another.

(3) As regards the devaluation of capital, in a crisis in the countries of individual capitalism a large part of the fictitious capital is annihilated. Financial manipulations connected with this process bring about a redivision of the surplus value among a smaller number of capitalists, so that the rate of profit increases. Connected with this process, and one of its expressions, is the selling of industrial enterprises to new buyers for low prices-such low prices as make the enterprises profitable concerns even in a crisis. Self-evidently a precondition for this process is the existence of individual ownership over the means of production-state capitalism excludes it. The only means of capital devaluation possible during a crisis under state capitalism is the wear and tear of the machines which lie idle, including their ‘moral’ wear and tear, i.e. obsolescence.

(4) As regards the finding of new markets: as we have said, state capitalism which has reached the stage of overproduction cannot, during a crisis when the building of new industries stops, find new markets of any considerable size inside the country itself. It must expand to foreign markets.

In the Tugan-Hayek stage, while Russia’s monopoly of foreign trade preserves it from foreign commodities, Russia itself directs its efforts not to production for foreign markets, but to production for its own industries. We have already seen how restricted is Russia’s foreign trade, which is directed mainly towards selling products in order to buy new means of production. In 1937, for instance, means of production made up 90.9 percent of all the imports, while means of consumption made up only 9.1 percent. [28]

If the end of the Tugan-Hayek phase were to approach, Stalinist Russia, faced with the creeping paralysis Bukharin describes – which cannot be overcome internally – would be thrown onto the world market.

The rise of Russia’s productive capacity itself will produce certain bottlenecks as a result of the uneven tempo of development of certain industries. (Even today there is a serious bottleneck in the lag of oil output behind that of the other basic industries.) In order to overcome these, to take advantage of certain superior natural conditions and to decrease the disadvantages of other natural conditions, Russia will tend to increase international exchange relations.

The need to accumulate – the result of industrial and military competition – will also at this stage drive Russia to compete on the world market.

There is no Chinese wall between the Tugan-Hayek and the Bukharinist stage. Between the tendency towards national economic autarky and the expansion to the world market, there is also no Chinese wall. Insofar as both transitions take place simultaneously, the picture of developed state capitalism given by Bukharin will need correction. On the background of the general stagnation of state capitalist economy, a cyclical movement will arise as a result of the cycles on the world market. Not one of the waves, however, will bring a boom which to any considerable extent ameliorates the conditions of the masses.

12. Production and consumption of means of destruction

As we have said, so long as a state capitalist country is backward, production can, in spite of antagonistic distribution, of the “restricted consumption of the masses”, rise continuously, as means of production produce means of production to produce means of production arid so on. When the production of means of production reaches saturation point (which is a relative concept compared with other countries) then “the consumption of the capitalists is the motive of production”. But as “the capitalist process of production is essentially a process of accumulation” [29], production whose motive is consumption is clearly the negation of capitalism. This negation reveals itself in traditional capitalism in the recurring crises of overproduction at which time accumulation ceases altogether and there is even disaccumulation, which bears witness to the fact that the capitalist relations of production and distribution have become an impediment to the accumulation of capital. It reveals itself in state capitalism when the economy reaches the ‘Bukharinist’ stage of stagnation: the accumulation of the past becomes an impediment to additional accumulation, the relations of production and distribution become an impediment to accumulation, capital becomes the limit for the accumulation of capital.

From the standpoint of the economy as a whole, what is specific about the consumption of the capitalists is the fact that it does not constitute part of the process of reproduction. The consumption of means of production reveals itself in new means of production or consumption, the means of consumption consumed by the workers reveal themselves in the reproduction of labour power which is a necessary element of the process of reproduction as a whole, but the products consumed by the bourgeoisie do not appear as an element in any form in the new production cycle. It is only a negative element, a subtraction from the process of reproduction.

There is, however, one kind of consumption which, while it is a subtraction from the process of reproduction just as much as the personal consumption of the bourgeoisie, nevertheless constitutes a means in the hands of the bourgeoisie to get new capital, new possibilities of accumulation, to “accumulate ... to conquer the world of social wealth, to increase the mass of human beings exploited”. This is war production. If we called the one kind the ‘personal consumption of the capitalist’, we should have to call the armaments, equipment and stores of the soldiers the ‘collective consumption of the capitalist class’. Although both the ‘personal consumption of the capitalist’ and the ‘collective consumption of the capitalist class’ are a subtraction from the process of reproduction, there is a fundamental difference between them from the standpoint of the capitalist class, and from the standpoint of humanity as a whole.

Let us begin by analysing the difference from the standpoint of the capitalist class.

The employment of a certain number of workers to cater for the ‘personal consumption of the capitalist’ will have the same direct results as the employment of the same number of workers to serve the ‘collective consumption of the capitalist class’; but indirectly the latter has invaluable advantages from the standpoint of the capitalist class: for in the event of a military victory the wealth of the victorious capitalist state will increase at the expense of the vanquished.

The production of guns, let us say in Germany, did not influence the accumulation or the rate of profit in any way other than if palaces for the bourgeoisie had been built, or even if uncompetitive products (i.e. uncompetitive with existing enterprises such as public palaces, parks, etc) had been produced which had been distributed gratis to the people. But the necessities of capitalist competition drove the German bourgeoisie to employ part of the population, not in the construction of palaces for the people, nor even for the bourgeoisie itself, but in war economy and war. [30]

The common factor of a war economy and a crisis of overproduction is that real accumulation is very small. If we add to this small accumulation the personal consumption of the capitalists, then subtract the wear and tear of capital, the destruction, etc from this sum, the rate of profit will be seen to be very low or even many times negative. (At the same time one industrial enterprise increases its capital at the expense of another.) Seeing that in respect of accumulation crisis and war have fundamentally the same results, it can be assumed theoretically that in place of the boom-crisis-boom cycle will come the boom-war-boom cycle. And seeing that the tendency of declining capitalism is the lengthening and deepening of the crisis, and the shortening of the boom which also becomes ever more superficial, we may theoretically assume that capitalism will enter a period whose characteristic feature is a cycle of wars and booms in which the former become ever longer and more destructive, and the latter ever shorter and more superficial. The only impediment to the complete transformation of the capitalist cycle from boom–crisis–boom to boom–war–boom is the social opposition of the masses. This alone can prevent the US, for instance, from making even vaster preparations for a third world war, or beginning the war itself when the post-war boom and the Marshall Plan exhaust themselves. Whereas in respect of capital accumulation, the direct result of a war economy is iii essence the same as that of a crisis, in respect of the level of production, the use of productive capacity a war economy is like a capitalist boom: in both the economy works at full blast. The boom–war–boom cycle would thus appear as the abolition of the economic cycle, as all the time there would be full employment, and the economy would be working at full blast.

The crisis of overproduction is at one and the same time an affirmation and negation of the capitalist mode of production. It is an affirmation because it is specific to it, and a negation because it throws into relief the impediments to this mode of production embodied in itself. This is equally true as regards the war economy. But here we must go further. A capitalist war does not lead only to a stoppage of accumulation and a destruction of capital to a point where accumulation becomes possible from anew. It can lead to destruction of such dimensions as signify a tendency towards the absolute negation of capitalism (on condition, of course, that the proletarian revolution does not negate capitalism) by barbarism. The war, like the crisis, is a partial negation of capitalism, but may lead to its absolute negation.

Once again we see that when the bourgeoisie comes into the most extreme conflict with the needs of humanity, as it does when entering the war cycle out of the crisis cycle, it uses elements of a socialist society. The state, intervening ever more in the direction of the economy, uses the socialist element of planning in the interests of stabilising its oppressive regime. In a war economy, as in a socialist economy, production goes on at full blast. But production at full blast where the relations of distribution are antagonistic, where the large-scale accumulation of the past impedes new accumulation, is possible only if a large part of the products is not exchanged, is not produced as values, but as use values. In a socialist economy the aim of production is use values; in a capitalist war economy a major part of production too is the production of use values. But use values in a socialist society are those needed by the masses, while in a capitalist war economy they comprise guns, equipment and stores for soldiers, etc. – use values determined in the interests of an exploiting minority. In a socialist society use values are the aim of production; in a capitalist war economy use values are means “to conquer the world of social wealth, to increase the mass of human beings exploited”. What is common to a capitalist war economy and a socialist economy make them extreme opposites.

If Stalinist Russia is not overthrown by the proletarian revolution or smashed in an imperialist war, and it completes the Tugan-Hayek stage, the bureaucracy will then have three methods open to it of circumventing overproduction and stagnation: (1) raising the standard of living of the masses; (2) increasing the personal consumption of the bureaucracy; (3) increasing the ‘collective consumption’ of the bureaucracy (war production). In the light of the masses’ lack of control over the means of production, and the sharpening antagonisms among the different powers, we may incontrovertibly say that the tendency overshadowing everything will be the third.

It is childish to ask whether Russia’s development in the Tugan-Hayek direction, or at a later stage towards the stagnation of production or towards a war economy, is the outcome of internal forces alone. It is as childish as to ask the same question regarding one individual capitalist in another country. If accumulation is necessary, it is only because of a competition between one capitalist and other capitalists. If accumulation at a certain stage comes to a standstill, but the capitalists do not build pyramids or palaces for the people, it is not because the individual capitalist gets less profit from this than by producing guns, but because the production of guns holds on its horizon the promise of control over wealth and people – and this is a necessity of competition.

It has been a necessary abstraction at a certain stage of our analysis to assume that only with the completion of the Tugan-Hayek stage would Russia be driven to a production whose motive is the consumption of the bureaucracy, and primarily their ‘collective consumption’. Now it is necessary to approach nearer to reality.

The Stalinist regime, as we have said, came into being as the result of two factors: the maturity of the world for socialism, and the backwardness of the Russian economy. The backwardness of Russia explains the possibility of the Tugan-Hayek stage; the maturity of the world in the face of the belatedness of the proletarian revolution brings the imperialist war to the foreground, which poses the necessity for Russia to undertake war production. Russia, therefore, produces machinery to produce machinery and so on, and at the same time must undertake war production. The war economy itself postpones the completion of the Tugan-Hayek stage.

13. The perspectives of Russian economy and the social character of the regime

As we know, every ruling class develops the productive forces up to a certain stage. We could hence define the class character of the regime in Russia according to the stage to which this regime can develop the productive forces.

If we find that the existing regime in Russia can (if it is not overthrown) develop the productive forces to a higher stage than capitalism did and could, it is sure proof that the ruling class in Russia is not fulfilling only the historical mission of the capitalist class. We should then have a new class to define.

The unparalleled tempo of development of the economy in Russia does not in itself prove the non-capitalist character of its system. We know, for instance, that United States capitalism developed incomparably more quickly than British capitalism. What we need to know in order to characterise the regime is the limits to which the productive forces in it can develop.

According to Marx, the only limit to the development of the productive forces under capitalism, the only limit to the accumulation of capital, is capital itself. Capitalist relations of production engender the conflict between production and consumption, the tendency towards the decline of the rate of profit, etc. Now, as we have shown, these same limits will restrict the development of the productive forces in Russia. After the point of saturation of the economy with means of production (which depends on the prevailing productive forces in the world) the productive forces in Russia will meet the same impediments as those in other countries. Thus, if we assume that Russia will not be conquered and destroyed by another power, it will succeed in developing its productive forces only to the same stage as world capitalism did, even though it may be the strongest power in the world. The Tugan-Hayek ‘solution’ and the Bukharinist stage are expressions of the incapacity of the regime to use production in the interests of the masses, and the regime is therefore driven either to the production of machinery to produce machinery and so on, or to stagnation, or to a war economy as a means “to conquer the world of social wealth, to increase the mass of human being exploited”.

One may say that all this is true only if one assumes that the antagonistic mode of distribution does not cease to exist. But to assume that the privileged rulers of Russia, who find themselves in opposition to the toilers on the one hand and to other capitalist powers on the other, will abolish this is as logical as to assume that the American capitalists will do it. The fact that the existing regime in Russia thus limits the development of the productive forces proves the capitalist character of this regime.

This throws new light also on another question that has already been dealt with – the relations of production and distribution in-Russia. According to Trotsky the relations of distribution prevailing in Russia are capitalist relations, while the relations of production are not. As we have remarked, the abstraction of relations of distribution from relations of production is foreign to Marxism. The analysis of this chapter has furnished a new proof of this: on the basis of the existing productive forces, an antagonistic capitalist method of distribution must have the same effect on the general development of the productive forces. We see again that the relations of distribution make up one of the important elements in the law of movement of the productive forces – they are part and parcel of the relations of production.

The above analysis of the limits of the development of the productive forces in Russia also takes the ground from beneath all those who try to define the ruling class in Russia as non-capitalist and non-proletarian, those who say that it is bureaucratic collectivist, managerial, etc.

One must not understand the words “limit to the development of the productive forces” mechanistically and take them to mean that there are absolute, inflexible limits. Under feudalism the limits to the development of the productive forces were the feudal relations of production: the productive forces could not develop beyond the limits of individual production. The socialisation of labour brought with it the destruction of feudalism. But although the limits of production under feudalism were the same iri>the different countries, the level of technique, productivity of labour and so forth reached were not exactly the same. The same applies to the limits of development on manorial or church property.

And we may say that just as the feudal character of church property is proved by the identity of the limits of development on this and on manorial property so the capitalist character of Russia is proved by the identity of the limits of its productive forces and those of world capitalism.

24. It is interesting to note that Marx already connected stagnation or dormancy with a decrease in the number of capitalists to a mere handful in the whole world.. He writes, “The rate of profit, that is the relative increment of capital, is above all important for all new offshoots of capitalism seeking an independent location. And as soon as the formation of capital were to fall into the hands of a few established great capitals, which are compensated by the mass of profits for the loss through a fall in the rate of profits, the vital fire of production would be extinguished. It would fall into a dormant state” (K. Marx, Capital, op. cit., vol.III, p.304).

25. Of course, in all probability, long before Stalinist Russia could reach this stage the proletarian revolution would have been victorious in Russia and the world.

26. J. Strachey, op. cit., pp.304-305. The difference between a crisis which expresses itself cyclically or in a creeping paralysis continuing for decades is not fundamental from the standpoint of the Marxian theory of crisis. Let us remember how Bernstein was refuted when he sought in 1898 to prove that Germany’s freedom from crises for the past 25 years proved the bankruptcy of the Marxist theory of crisis. Rosa Luxemburg in Sozialreform oder Revolution? shows that the law of periodicity of the crisis – whether the period be ten or 20 years (or even 40 or 50 years) – is not essential to the Marxist theory of crises, but is “their internal mechanism and deep general causes”.

30. The source of financing the palaces would have been the same as the source of financing the guns. Hitler did not reach financial bankruptcy as bourgeois and reformist financiers had mistakenly prophesied since 1933. When Hitler came to power the national debt was 40 percent of the annual national income, and the pre-Hitler government found it extremely difficult to bear such a debt burden. After a few years of Hitler’s rule the national debt was many times higher, but Hitler found no difficulty in paying the interest on it. The reason is that with the working of previously unused factors of production the source of finance – the national income – increases correspondingly with war production. When the unused factors of production are brought into use by the economy’s going onto a war footing the employment of people in the production of guns does not always cause a decline in the consumption of the masses or in the accumulation of the capitalism, but may be accompanied by a rise. Thus, for instance, if 3 million of 6 million unemployed are put into the production of guns, the purchasing power distributed among them will cause the employment of, let us say, an additional 2 million in the production of means of consumption and 1 million in the production of new means of production. The employment of 3 million in the production of guns thus does not cause a decline in the volume of the capital accumulated or in the consumption of the masses, but a certain increase due to the fact that instead of 6 million unemployed producing nothing there are now only 3 million who add nothing to the process of reproduction. This internal contradiction in capitalism causes a subtraction to appear as an addition. It was such conditions that caused the national income in Germany till 1943 and in the US during the whole war to grow more than the war expenditure.

This of course does not abolish the fundamental antagonism between the production of guns and butter, which is clearly revealed in the destruction of factors of production in the enemy countries brought about by the process of consuming the guns.